United States v. First United Security Bank (2009)

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1 DOJ Redlining Cases Failure to provide lending services to minority areas Few or no branches Little or no marketing CRA ( Community Reinvestment Act ) assessment area excluding minority areas Extremely low proportion of loans

2 United States v. First United Security Bank (2009) Redlining evidence included long term pattern in majority African-American counties and census tracts of: no branches little or no marketing exclusion from the bank s three separate CRA assessment areas extremely low proportion of loans

4 United States v. First United Security Bank (2009) Redlining claim: Evidence of low proportion of loans in majority African-American counties and census tracts Used market area designated in SEC 10K reports because African-American areas were excluded from bank s CRA assessment areas & bank operated outside of MSAs

that from 2004-2006: Bank made only 218 of its 1563

tracts Comparable lenders made 31% of such loans in

5 United States v. First United Security Bank (2009) Complaint alleged that from : Bank made only 218 of its 1563 mortgage loans (14%) in majority-minority census tracts Comparable lenders made 31% of such loans in majority minority census tracts (twice as many) This difference is statistically significant

United States v. First United Security Bank (2009) Complaint alleged that from 2004-2006: Bank made only 245 of its 2134 CRA small business loans (11.

7 United States v. First United Security Bank (2009) Complaint alleged that from : Bank made only 245 of its 2134 CRA small business loans (11.5%) in majorityminority census tracts All lenders made 21% of such loans in majority minority census tracts (almost twice as many) This difference is statistically significant

9 United States v. First United Security Bank (2009) Consent order filed with complaint includes: non-discrimination injunction one new branch in a majority A-A area training requirements affirmative outreach and marketing revised CRA assessment areas

10 United States v. First United Security Bank (2009) Monetary relief: $500K in loan discount fund $110K for outreach $55K damages for African-American customers charged higher interest rates

11 Recent ECOA/FHA Redlining Actions U.S. v. Midwest BankCentre (2011) mortgage redlining Federal Reserve Board ( FRB ) referral U.S. v. Citizens Republic Bancorp and Citizens Bank (2011) mortgage redlining FRB referral

12 Allegations include: Midwest and Citizens branches exclusively or almost exclusively in white census tracts CRA assessment area formed horseshoe around minority communities fewer applications and/or originations from African-American census tracts than peers

13 Midwest and Citizens Relief includes: Opening full-service branches in African-American neighborhoods Required investment of > $1 million in African-American neighborhoods, including special financing program, consumer education and credit repair, and outreach. Partnership with City to provide > $1 million in matching grants of up to $5,000 to existing homeowners for exterior improvements.

14 U.S. v. Community State Bank (2013) Redlining allegations include: CRA assessment area drawn to exclude minority neighborhoods Written policies discouraging loans outside assessment area 1 application from African-American census tracts between 2006 and 2009

15 U.S. v. Community State Bank (2013) Relief includes: Opening loan production office in one of the redlined neighborhoods $75,000 loan subsidy fund $75,000 partnership program with groups promoting revitalization of redlined neighborhoods $15,000 outreach program Expansion of lending area to redlined neighborhoods

16 U.S. v. Luther Burbank Savings (2012) Challenge to $400,000 minimum loan amount policy for wholesale mortgage lending that had an unjustified disparate impact on African American and Latino borrowers; resolved by consent order requiring $2 million investment in impacted majority-minority California neighborhoods. only 5.8 percent of Luther s single-family residential mortgage loans were made to African-American and Hispanic borrowers, compared to 31.8 percent of such loans made to African-American and Hispanic borrowers by comparable prime lenders. Similarly, only 5.2 percent of Luther s single-family residential loans in the greater Los Angeles area were made in majority-minority census tracts (areas with a non-white population greater than 50 percent), compared to 41.7 percent of such loans made in these tracts by comparable prime lenders.

17 DOJ Redlining Settlements All recent redlining settlements include: Nondiscrimination provisions New branches in previously redlined areas Outreach & consumer education Training and changes to bank procedures Monetary relief ranging from $3 to $10 million in loan subsidies for previously redlined areas

18 Reverse Redlining Targeting underserved communities for abusive lending practices Redlining by prime lenders leaves minority areas vulnerable Investigations may focus on: Large percentage of loans made to minorities Specific marketing to minorities Predatory nature of loans

19 Reverse Redlining Redlining creates the market conditions in which reverse redlining thrives. Where entire communities are abandoned by mainstream financial institutions, they become attractive prey to unscrupulous lenders. See also Clark v. Universal Builders, Inc., 501 F.2d 324, 328, (7 th Cir. 1973), cert. denied ("[t]hrough the medium of exorbitant prices and severe, long-term land contract terms blacks are tied to housing in the ghetto and segregated inner-city neighborhoods.").

20 Reverse Redlining Must demonstrate that a defendant s lending practices were: unfair or predatory and either intentionally targeted on the basis of a protected category or that there is a disparate impact on the basis of protected category

treatment of other nonprotected classes need not be established. Matthews v. New Century Mortg. Corp.

21 Reverse Redlining When there is direct evidence that the defendant deliberately targeted a protected class with unfair terms in a realestate related transaction, comparative evidence of the defendant s treatment of other nonprotected classes need not be established. Matthews v. New Century Mortg. Corp., 185 F.Supp.2d 874 (S.D. Ohio 2002) Barkley v. Olympia Mortg. Corp., 2007 WL (E.D.N.Y. 2007)

22 Reverse Redlining Through Use of Discretionary Pricing A number of class action lawsuits have alleged that lenders discretionary and subjective pricing practices had a disparate impact on the cost of loans extended to minority borrowers Ramirez v. Greenpoint Mortg. Funding, Inc., 633 F. Supp. 2d (N.D. Cal. 2008) Miller v. Countrywide Bank, N.A., 571 F. Supp. 2d 251 (D. Mass. 2008) Taylor v. Accredited Home Lenders, Inc., 580 F.Supp.2d 1062 (S.D. Cal. 2008)

minorities more likely to receive: subprime loans higher yield

23 Disparate Impact Allegations Plaintiffs relied on statistical data about the prevalence of subjective risk-based pricing on minorities more likely to receive: subprime loans higher yield spread premiums higher fees steered into less advantageous loan products

24 United States v. AutoFare (2014) Defendants operate Buy Here Pay Here auto dealerships, providing direct financing for used cars Customers are only required to make down payment and prove residency and income Complaint filed January 2014

25 United States v. AutoFare (2014) Complaint alleges that defendants targeted African-American borrowers for predatory auto loans Predatory loan features: Excessive sales price Very high down payment Disproportionately high APR

26 United States v. AutoFare (2014) Complaint alleges owner used racial slurs and epithets and made derogatory statements about African-American customers Many of defendants customers defaulted and/or had vehicles repossessed

27 US v. GFI Mortgage (2012) Challenge to pattern or practice of charging African American and Latino borrowers discriminatory mortgage prices; resolved by $3.55 million settlement. Settlement also required GFI to pay the maximum $55,000 civil penalty allowed by the Fair Housing Act and to document its loan pricing decisions

SunTrust also required to maintain policy of document and review of any variation in loan interest rates

28 US v. SunTrust Mortgage (2012) Nationwide challenge to pattern or practice of charging African American and Latino borrowers discriminatory mortgage prices; resolved by $21 million settlement. SunTrust also required to maintain policy of document and review of any variation in loan interest rates and fees and restrict compensating loan officers and mortgage brokers based on the terms or conditions of a particular loan.

MBBA-NH & MAMP. Compliance Conference. April 19, 2017

MBBA-NH & MAMP. Compliance Conference. April 19, 2017 MBBA-NH & MAMP Compliance Conference April 19, 2017 Agenda HMDA Overview Readiness Steps HMDA Expansion Fields 2 New HMDA Rule Summary Changes to Home Mortgage Disclosure: Regulation C Types of institutions